Dot Residential: property start-up offers buy-to-let investing in one click

Lucy Sharp, the co-founder of Dot Residential, has a prediction about the property market: “I believe in two, three, five years, one-click property buying will be the same as buying something on Net-A-Porter, or buying a watch online.”

Dot Residential, a property startup offering prospective investors in the UK property market the opportunity to become landlords “in one click”, opened its online marketplace to transactions in November.

Dot’s website promises investors 10 per cent returns on buy-to-let property purchases with “zero hassle”, allowing investors to choose from a portfolio of pre-approved properties, currently limited to Manchester and the surrounding area. The investors are charged a minimum 25 per cent deposit and offered a bridge loan instead of a mortgage, described by Sharp as “a point of sale cash advance”, backed by US-lenders.

Sharp says this means that Dot can act on the investor’s behalf as a cash buyer, securing a swift sale. The bridge loan, which incurs interest of 0.6 per cent, is also intended to cover the refurbishment of the property, which Dot manages in house with its design team.

Sharp co-founded Dot Residential with Gray Stern, the entrepreneur behind Landbay, a company that facilitates peer-to-peer lending for buy-to-let mortgages. Together they have assembled a team of six, including an in-house interior designer, to work on the acquisition and refurbishment of properties in Manchester. Dot then works with third parties to tenant the properties and with lenders to refinance the bridge loan with a mortgage, with the aim of securing a better rate.

The company charges 2 per cent of the purchase price for putting the opportunity together, 1 per cent of the bridge loan if the investor chooses to use it, 10 per cent of any refurbishment costs as project management and 10 per cent of rental income for ongoing property management.

Though the marketplace went live in November, it wasn’t until the day after the election that the founders noticed the business really start to get going.

“As soon as the election had passed we had a massive influx of interest from investors not only from overseas but people in London who had been engaging with us who hadn’t yet clicked the ‘buy with Dot’ button yet,” says Sharp. “Those guys have sprung into action now.”

Housebuilders made some of the biggest share price gains of any sector in the aftermath of the Conservative election victory in December. Shares in Taylor Wimpey, Berkeley Homes and Persimmon rose in the double-digits as investors bet on new housing commitments and residential developments to buoy the UK property market, which has wavered under pressure from regulation affecting buy-to-let investors and the uncertainty surrounding Brexit.

The improved sentiment comes at a critical time for Dot Residential as it establishes its marketplace among investors.

However, David Smith, policy director at Residential Landlords Association, cautioned investors against schemes that “look good”, as opposed to traditional property investments, where the average deposit is typically a much lower 10 per cent. “The Solicitors Regulation Authority has issued a warning about schemes that are doing things that are not usual in the property market, for example asking for money early in the process or for large deposits, because you are entirely reliant on the company not going belly up,” Smith says. “The reality is, a lot of developers do go belly up.”

Henry Pryor, a buying agent, says that buy-to-let investors are more likely to earn 6 per cent returns on property, rather than the 10 per cent touted by Dot Residential. He advises: “You don’t need someone to run your property investment portfolio for you – if you aren’t clever enough to do it yourself then you shouldn’t be doing it at all.”

Officials are under pressure to regulate short lets, which used to be illegal in London until David Cameron’s government relaxed the rules, allowing short lets of property for up to 90 days a year. Sharp says 70 per cent of the property investors using Dot Residential are interested in short-term lets.

She says Dot is helping the housing crisis in the UK by bringing empty and underused properties back into the market, such as apartments in Manchester’s warehouse district. Smith, however, says that turning residential properties into short-term lets contribute to a shortage of homes on the market for first-time buyers: “This is taking investment and property out of the home-ownership market altogether and putting it into the short-let market, which is arguably oversaturated.”

Dot’s model has proved attractive to venture capitalists. The startup is closing a £1.5m funding round this quarter, after raising an initial $1.5m (£1.2m) in a pre-seed round in 2018. Dot has plans to expand into other secondary UK cities including Bath and Cheltenham in the UK. In the US, it would target Austin in Texas over New York City. Sharp says: “Our focus is very much to uncover underserved tourist towns with great infrastructure and young professionals who’ve relocated or are building families there. In terms of the rental market, it’s always going to be strong there.”

However, Pryor says that no property owner is immune to declining returns. “The market is cooling and what starts in the southeast tends to ripple outwards,” he says. “Property is not a one way bet.”